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Finally… news worth celebrating from Sirius XM

Today's Financial News - Posted June 22, 2009

It has been a while since we saw “fundamentally” good news from Sirius XM (NASDAQ:SIRI). News of a fresh debt offering has prices surging today, but will it last?

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Today is a day worth celebrating. Of course, the rejoicing is not because of the market’s deep dive today. It is certainly not because of imminent signs of world peace (far from it). And the action in Washington is not bringing a smile to many faces.

It is a good day because Sirius XM Radio’s (NASDAQ:SIRI) share price is acting rationally.

It is the first time in a long time we can look at the stock and know the surge is due to something predictable and tangible like fundamental advances and not some speculative hype emanating from Howard Stern’s group of loyal shareholding fans.

In case you have not been following the drama that is Sirius XM, earlier this year the company was in serious trouble. It had a pile of debt coming due and its cash reserves were nowhere near ample. At one point, the market was convinced a bankruptcy filing was hours away.

But then came John Malone and his fat balance sheet. He cut Sirius a check for $350 million, allowing the unprofitable business to stay alive for at least another year.

The only problem…  Malone charged interest of 15%.

But when the credit markets froze solid, an expensive loan was better than the alternatives.

After the thaw

Now that the credit markets are moving once again and all sorts of company are raising capital through massive debt and equity offerings, Sirius wants to pay back Malone and refinance at a lower rate.

Sirius announced this morning it is offering $350 million in senior four-year notes to institutional investors.

Chances are the new debt will have a substantially lower interest rate and will save the company at least a few million in interest over the next few years.

The news is certainly cause for shares to rise.

But like all things related to Sirius, today’s surge is overdone.

As I write, shares of Sirius are up by more than 5%, bringing the company’s Street value to a whopping $1.4 billion.

Granted the offering will add a few dollars to Sirius’ income and cash flow statements, but it does not fix a flawed business model.

The company continues to lose too many subscribers. Its growth will be limited as Detroit figures out how to rebuild. And its talent (if you can call it that), is way too expensive.

Over the last month, shares of Sirius have had difficulty overcoming the $0.35 level. Today’s news sent shares over the resistance, but with the market deep in the red, do not expect the momentum to last much longer.

Nearly 5% of Sirius shares are sold short. There is no reason today’s news should make the figure grow any smaller anytime soon.

This one is filled with risk and not much else.


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Posted by Andrew Snyder · Filed Under Featuring..., Investment Strategies 

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2 Responses to “Finally… news worth celebrating from Sirius XM”

  • Jimmy Says:
    June 22nd, 2009 at 5:55 pm

    ARE U SERIOUS? Stock surges? 2 pennies? Flawed business model? WHAT? The company continues to lose subs? How would you even begin to imagine you know that they are?
    More irresponsible reporting from an amateur! Great just what we need!
    Sign up for your newsletter???!!!! Im blocking it!

  • js Says:
    June 22nd, 2009 at 7:13 pm

    “Sirius announced this morning it is offering $350 million in senior four-year notes to institutional investors.
    Chances are the new debt will have a substantially lower interest rate and will save the company at least a few million in interest over the next few years.”

    the rate will be over 20%

Your comments are welcome